The high street lender said the extra charge for PPI took its total bill for the scandal last year to £4 billion.

This left bottom line pre-tax profits 7% lower at £1.6 billion in 2015.

But Lloyds said underlying profits rose 5% to £8.1 billion and confirmed it was sharing out a £353.7 million bonus pot among staff, working out at £4,600 per employee on average.

Boss Antonio Horta-Osorio has also been awarded a deferred shares bonus worth £449,000.

Mr Horta-Osorio, the group chief executive, has also secured a 6% pay rise to £1.13 million – his first since joining the group in January 2011.

But 4% of the salary rise will only be paid in shares, which will be awarded when the Government sells its final 9% stake in the group.

Lloyds added its annual staff bonus pot was down from £369.5 million in 2014.

Investors were also offered some cheer as Lloyds announced a £2 billion dividend payout, with a 2.25p divi and 0.5p special divi per share.

Mr Horta-Osorio shrugged off recent sharp falls in the group’s share price amid a wider sell-off in the banking sector on concerns over the impact of a global economic slowdown.

He said: “Our differentiated, UK-focused, retail and commercial business model continues to deliver, with our financial strength, cost leadership and lower risk focus positioning us well in the face of current market uncertainty.”

He remained tight-lipped on the bank’s position on Britain’s vote on European Union membership, saying it was a “matter for the British people”.

The group will discuss the June 23 referendum at its upcoming board meeting, he said.

Shares in Lloyds surged as much as 10% after the special dividend announcement, clawing back some of the hefty losses seen in recent months amid wider stock market turbulence.

Lloyds shares have fallen more than a fifth over the past year.

The dividend payments come despite the further mammoth PPI charge put by in the fourth quarter, which has taken its total PPI bill to £16 billion.

The PPI hit comes after Royal Bank of Scotland put in place another £500 million for mis-selling claims in January, while Santander UK saw profits fall 4% last year after a £450 million PPI charge.

The Financial Conduct Authority has proposed a two-year deadline on PPI claims, which is expected to trigger a rush by customers in the coming months.

Lloyds said it believes the money set aside will cover its likely compensation claims through to the 2018 deadline.

Market strategist Richard Hunter said: “Lloyds has provided a bright spot within a notoriously difficult sector, with a set of results underlying the swift progress it is making in an effort to return to former glories.”

But he said the PPI charges “remain a drag” for the lender, adding it could also suffer if a Brexit becomes reality, given that Lloyds is seen as a “proxy for the UK economy”.